IIT.L Regulatory News (IIT)

The Independent Investment Trust PLC

Annual Financial Report

This is the Annual Financial Report of The Independent Investment Trust PLC as required to be published under DTR 4 of the UKLA Listing Rules.

 The financial information set out in this Annual Financial Report does not constitute the Company's statutory accounts for the years ended 30 November 2018 or 30 November 2019 but is derived from those accounts. The Company's auditors have reported on the annual report and financial statements for 2018 and 2019; their reports were unqualified, did not draw attention to any matters by way of emphasis, and did not contain statements under 498(2) or 498(3) of the Companies Act 2006. Statutory accounts for the year ended 30 November 2018 have been filed with the Registrar of Companies and the statutory accounts for the year ended 30 November 2019 will be delivered to the Registrar in due course.

The annual report and financial Statements for the year ended 30 November 2019, including the Notice of Annual General Meeting, has been submitted electronically to the National Storage Mechanism and will shortly be available for inspection at http://www.morningstar.co.uk/uk/NSM and is also available on the Independent Investment Trust's website at: www.independentinvestmenttrust.co.uk.

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

Baillie Gifford & Co

Company Secretaries

26 February 2020

Chairman's Statement

Over the year to 30 November 2019, our Company produced a net asset value (NAV) total return of 8.5%. Over the same period, theoretical investments in the FTSE All-Share Index and the FTSE World Index would have produced total returns of 11% and 13.1% respectively. It is particularly disappointing that, after an encouraging first half, we failed to match the return on either index. Poor stock selection, notably since the EU referendum, is largely to blame, with the Eddie Stobart debacle a particularly painful example.

A further erosion of the rating of our shares saw the discount move out from 1.2% at 30 November 2018 to 9.4% at 30 November 2019, producing a share price total return of -0.5%. By 14 January 2020 the NAV had risen to 612p and the share price to 589p, reducing the discount to 3.8%.

Economic activity over the last year has tended to disappoint with the result that the nascent tightening of monetary policy highlighted in our report a year ago has given way to renewed stimulus. Markets, in the tradition of Pavlov's dog, have responded well to this. The UK market underperformed the world market over the period as many investors chose to stay out of the market owing to the various uncertainties attending Brexit and the political situation.

We made very few changes to the portfolio over the year: the only significant adjustment to our sector weightings deriving from transactions was in technology, where the sale of Kainos and a reduction in Blue Prism led to a fall in our exposure. Elsewhere, good share price performances boosted our exposure to housebuilding and to travel and leisure, while poor share price performances caused a substantial reduction in our business services exposure. In keeping with our prediction in last year's report, our cash balances were higher than usual and ended at 13.6% on 30 November 2019 as against 8.6% on 30 November 2018. Further comments on the portfolio can be found in the Managing Director's Report below.

At risk of basking in the glow of past glories, we once again draw attention to our longer term record: for the period from inception in October 2000 to 30 November 2019, we produced an NAV total return of 748%, equivalent to a rate of roughly 11.9% per annum, of which 2.8% per annum can be offset by RPI inflation. By comparison, the notional return available from the FTSE All-Share Index over the period amounted to 169%, or 5.3% per annum.

Earnings per share for the year were 13.48p (10.53p in 2018). As foreshadowed in our interim report, we are recommending a final dividend of 5p (5p in 2018), making a total regular dividend of 8p (7p in 2018). In addition, we are proposing a special dividend of 5p (3p in 2018). Both will be paid on 6 April with an ex-dividend date of 20 February.

Our ongoing charges ratio rose from 0.21% to 0.24%. The only reason for this is that the average daily value of our assets in the year under review was materially lower than in the previous year; our costs actually fell marginally. The ratio remains one of the lowest - if not the lowest - in the industry.

During the year we were able to buy in rather over 650,000 shares at an average discount of 5.9%. We remain keen to buy back shares when this can be done on terms that benefit both leaving and continuing shareholders. Such terms are very much a function of market conditions prevailing at the time.

One of our major concerns throughout the financial year was the risk of adverse political developments. The prospect of continuing stalemate or, worse still, the election of a left wing Labour government tended to overshadow our enthusiasm for the companies in which we are invested. The election of a Conservative government with a substantial majority shortly after our year end has dispelled this concern. There are, of course, plenty of other things to worry about - not least the terms on which we exit the EU - but we believe that the removal of a major worry justifies a less cautious stance. Since 30 November, we have reduced our cash balances to £33m (9.8% of our assets at 14 January), largely through investment in domestic UK equities.

Once again, we should like to encourage you to come to the AGM, which is to be held in the Baillie Gifford offices at Calton Square at 4.30pm on 26 March 2020. It will help our planning if we know how many shareholders are likely to attend, and I shall be grateful if you will mark the proxy form accordingly and return it to the Company's registrars. I look forward to seeing as many of you as possible there.

Douglas McDougall

24 January 2020

Past performance is not a guide to future performance,

For a definition of Terms see Glossary of Terms and Alternative Performance Measures at the end of this announcement.

Total return information is sourced from Baillie Gifford/Refinitiv and relevant underlying index providers. See disclaimer at the end of this announcement.

Managing Director's Report

Our performance over the year has been covered in the Chairman's Statement.

A poor second half performance from our once large holding in Blue Prism restrained the overall performance of our technology and telecommunications stake: worth £72.7m at 30 November 2018, it had fallen in value to £64.9m at 30 November 2019 after net sales of £12.5m. Blue Prism's share price was hurt by poor interim results but staged a partial recovery when a year end trading statement provided reassurance that the company continues to grow strongly. It still appears to have great potential, but we have learnt that perceptions of the strength of its market position can change significantly over short periods of time. Other disappointments included Zoo Digital, whose legacy subtitling business came under pressure, and Alfa Financial Software, which continues to experience weak conditions in its markets. We sold out of Kainos at a good price and participated in the Seeing Machines equity issue, since which the share price has staged a worthwhile recovery. Holdings in Herald, Gamma and FDM all performed well in response to generally pleasing results.

Growing investor enthusiasm for our three computer games companies, Team 17, Codemasters and Frontier Developments, was the main factor behind the strong performance of our large stake in the travel and leisure sector: worth £50.3m at 30 November 2018, it had grown in value to £60.6m at 30 November 2019 after net sales of £0.5m. The advent of cloud computing has transformed the economics of the computer games industry and our holdings all appear to be benefiting in much the way we had hoped. Elsewhere in the sector, mildly disappointing share price performances from The Gym Group (on the back of competition concerns) and our new holding Loungers (largely attributable to a subdued consumer spending environment) were outweighed by good recoveries in the prices of On the Beach and Hollywood Bowl. We took advantage in each case to reduce the holdings - Hollywood Bowl on grounds of valuation and On the Beach in anticipation of more difficult trading conditions.

The year under review was a happier one for our housebuilders. Although there were signs of continued weakness at the high end of the housing market, demand for reasonably priced houses, the principal market for most quoted builders, remained strong. Margins have come back from abnormally high levels, but profitability has remained at attractive levels and the land market, a vital component of future profits, has remained benign. Despite the recovery in share prices, these stocks are still pricing in a subdued trading outlook. Following the Conservative election victory, we think there is a good chance that trading conditions will improve rather than deteriorate. Meanwhile our confidence in the long term outlook remains as high as ever. Our only activity during the year comprised a small purchase of Redrow (£1.0m), made to counteract the effect of the company's share consolidation, and a brief investment in Galliford Try which yielded a profit of £0.2m. The valuation of our position in the sector rose from £41.3m at 30 November 2018 to £53.6m at 30 November 2019. We have made significant additions to our stake since the General Election.

Our business services stake performed terribly during the year. A disastrous investment in the conference call company, LoopUp, was sold at a big loss and we wrote down our holding in Eddie Stobart to a nominal valuation to reflect the company's untenable financial position; the shares remain suspended pending the long overdue publication of the company's interim figures. On a happier note Midwich, the distributor of audiovisual equipment, continued to trade satisfactorily and saw this reflected in its share price; we reduced the holding to take account of the illiquidity in the market for its shares. Overall, our business service holdings fell in value from £29.1m at 30 November 2018 to £14.8m at 30 November 2019 after sales of £4.4m.

Our retail holdings also had a difficult year. We sold our holding in the clothing retailer, Quiz, at a big loss and the share price of The Works fell sharply as trading deteriorated. Fortunately, our big holding in the second hand car retailer, Motorpoint, performed well as the company continued to trade resiliently in a tough second hand car market; as with Midwich, we reduced the holding on grounds of illiquidity. Overall, a retail stake worth £16.8m at 30 November 2018 had fallen in value to £14.0m by 30 November 2019 after sales of £2.0m.

Elsewhere in the portfolio, the Ashtead share price staged a strong recovery as the company continued to trade well, but the Fever-Tree share price fell as the company delivered disappointing sales in the important UK market; sales elsewhere were ahead of expectations. The Medica share price was unchanged in reaction to results that met reduced expectations, while Polar Capital continued to make satisfactory progress and NAHL staged a muted recovery as signs emerged that trading was bottoming out. Our energy holdings performed very poorly in reaction to disappointing results caused principally by difficult operating conditions in the Permian Basin. A short lived investment in NewRiver REIT was sold at a significant loss and, finally, our new holding in the biotechnology company Oxford Biomedica made a promising debut.

Max Ward

24 January 2020

Past performance is not a guide to future performance.

List of Investments as at 30 November 2019

All holdings are in equities domiciled in the UK unless otherwise stated.

* The shares were suspended from trading on 23 August 2019.

Key Performance Indicators

The key performance indicators (KPIs) used to measure the progress and performance of the Company over time are established industry measures and are as follows:

¾ the movement in net asset value per ordinary share on a total return basis;

¾ the discount or premium of the share price to the net asset value; and

¾ the ongoing charges.

An explanation of these measures can be found in the Glossary of Terms and Alternative Performance Measures at the end of this announcement.

In addition to the above, the board also has regard to the total return of the FTSE All-Share Index and considers the performance of comparable companies.

The Long Term Record on pages 7 and 8 of the annual report and financial statements provides detailed performance information since inception. The net asset value total return for the year is contained in the Chairman's Statement along with information on the discount and ongoing charges.

Future Developments of the Company

The outlook for the Company is dependent to a significant degree on economic events and the financial markets. Further comments on the outlook for the Company and its investment portfolio are included in the Chairman's Statement above.

Market Purchases of Own Shares

At the last Annual General Meeting the Company was granted authority to purchase up to 8,292,468 ordinary shares (equivalent to 14.99% of its issued share capital), such authority to expire at the conclusion of the Annual General Meeting to be held in respect of the year ended 30 November 2019. During the year to 30 November 2019 the Company bought back 652,622 ordinary shares (nominal value £163,156, representing 1.2% of the called up share capital at 30 November 2018) on the London Stock Exchange for cancellation. The total consideration for these shares was £3,396,00. No ordinary shares were bought back by the Company between 1 December 2019 and 23 January 2020, the latest practicable date prior to publication of this report.

The principal reasons for share buybacks are to address any imbalance between the supply and demand for the Company's shares and to increase the net asset value per remaining share. The Company may either cancel bought-back shares immediately or hold them 'in treasury' and then:

i) sell such shares (or any of them) for cash (or its equivalent under the Companies Act 2006); or

ii) cancel the shares (or any of them).

Shares will only be resold from treasury at a price at or above net asset value per share. No shares were held in treasury as at 23 January 2020, and no such holdings are planned.

Related Party Transactions

The directors' fees and shareholdings are detailed in the Directors' Remuneration Report on page 25 of the annual report and financial statements. With the exception of Max Ward, the managing director, no director has a contract of service with the Company. Details of Mr Ward's contract for services are set out on page 24 of the annual report and financial statements. During the year no director was interested in any contract or other matter requiring disclosure under section 412 of the Companies Act 2006.

Principal Risks

As explained on pages 20 and 21 of the annual report and financial statements there is a process for identifying, evaluating and managing the risks faced by the Company on a regular basis. The directors have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. There have been no significant changes to the principal risks during the year. A description of these risks and how they are being managed or mitigated is set out below:

Financial risk

The Company's assets consist mainly of listed securities and its principal financial risks are therefore market related and include market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. An explanation of those risks and how they are managed is contained below. To mitigate this risk, at each board meeting the composition and diversification of the portfolio by geographical and industrial sectors are considered along with sales and purchases of investments. Individual investments are discussed with the managing director together with his general views on the various investment markets and sectors.

Investment strategy risk

Pursuing an investment strategy to fulfil the Company's objective which the market perceives to be unattractive or inappropriate, or an ineffective implementation of an attractive or appropriate strategy, may lead to reduced returns for shareholders and, as a result, a decreased demand for the Company's shares. This may lead to the Company's shares trading at a widening discount to their Net Asset Value. To mitigate this risk, the board regularly reviews and monitors: the Company's objective and investment policy and strategy; the investment portfolio and its performance; the level of discount/premium to Net Asset Value at which the shares trade; and movements in the share register.

Regulatory risk

Failure to comply with applicable legal and regulatory requirements such as the tax rules for investment trusts, the UKLA Listing Rules, the Companies Act and the Alternative Investment Fund Managers Regulations 2013 could lead to suspension of the Company's Stock Exchange listing, financial penalties, a qualified audit report or to the Company being subject to tax on capital gains. To mitigate this risk, the practical measures to ensure compliance with regulations and with company law, and to provide effective and efficient operations as they relate to secretarial and administrative matters, have been delegated to Baillie Gifford & Co. Baillie Gifford's Internal Audit and Compliance departments provide regular reports to the audit committee on Baillie Gifford's monitoring programmes. Major regulatory change could impose disproportionate compliance burdens on the Company or threaten the viability of the investment trust structure. In such circumstances representation would be made to defend the special circumstances of investment trusts. Shareholder documents and announcements, including the Company's published interim and annual report and financial statements, are subject to stringent review processes and procedures are in place to ensure adherence to the Transparency Directive and the Market Abuse Directive with reference to inside information.

Custody risk

Safe custody of the Company's assets may be compromised through control failures by the Company's custodian, including breaches of cyber security. To mitigate this risk, cash and portfolio holdings are regularly reconciled to the custodian's records by Baillie Gifford & Co. The audit committee reviewed Baillie Gifford's Report on Internal Controls which details the controls in place regarding the recording and reconciliation of cash and portfolio holdings to third party data. The custodian's Internal Controls Reports are reviewed by Baillie Gifford & Co and a summary of the key points is provided to the audit committee by Baillie Gifford & Co's Business Risk department.

Operational risk

Risk of loss resulting from inadequate or failed internal controls, processes and systems, or from external events. To mitigate this risk, Baillie Gifford's Internal Audit and Compliance departments provide regular reports to the audit committee. The board also reviews Baillie Gifford's Report on Internal Controls and the reports by other key service providers are reviewed by Baillie Gifford on behalf of the board. In addition, Baillie Gifford has a comprehensive business continuity plan which facilitates continued operations of the business in the event of a service disruption or major disaster.

Discount risk

The discount/premium at which the Company's shares trade relative to its Net Asset Value can change. The risk of a widening discount is that it may undermine investor confidence in the Company. To manage this risk, the board monitors the level of discount/premium at which the shares trade and the Company has authority to buy back its existing shares when deemed by the board to be in the best interests of the Company and its shareholders.

Political risk

The board is of the view that political change in areas in which the Company invests or may invest may increasingly have practical consequences for the Company. To mitigate this risk, developments are closely monitored and considered by the board. The board has noted the UK Government's intention that the UK should leave the European Union on 31 January 2020. Whilst there is considerable uncertainty at present, the board will continue to monitor developments as they occur and assess the potential consequences for the Company's future activities.

Resource risk

As the Company is self managed and has only two employees (the managing director and full-time portfolio manager of the portfolio, Max Ward, and an office manager) the loss of personnel may adversely impact investment performance. To mitigate this risk, contingency plans are in place to deal with any loss of personnel. Secretarial and accounting functions are contracted out to Baillie Gifford & Co and are not subject to resource risk.

Viability Statement

In accordance with provision C.2.2 of the 2016 UK Corporate Governance Code, the directors have assessed the prospects of the Company over a five year period. The directors believe this period to be appropriate as it is reflective of the Company's investment and planning timeframe and, in the absence of any adverse change to the regulatory environment and the favourable tax treatment afforded to UK investment trusts, is a period over which they do not expect there to be any significant change to the current principal risks and to the adequacy of the mitigating controls in place. The directors do not envisage any change in strategy or objectives or any events that would prevent the Company from continuing to operate over that period.

In making this assessment the directors have taken into account the Company's current position and its self-managed status and have conducted a robust assessment of the Company's principal risks and uncertainties detailed above. Although the Company has the authority to buy back up to 14.99% of its issued share capital, which is renewed annually, there is no stated discount control mechanism in place. The directors have also considered the Company's investment objective and policy, its dividend policy, the nature of its assets, its liabilities and projected income and expenditure. The Company is not permitted to employ gearing whilst it continues to be a small registered UK AIFM, its ongoing charges are a very small percentage of its assets (2019 - 0.24%; 2018 - 0.21%) and the vast majority of the Company's investments are readily realizable and can be sold to meet liabilities as they fall due. Contingency plans are in place to deal with any loss of key personnel. In the event of the departure of the managing director, which is not foreseen within the indicated timespan, the board would endeavour to present shareholders with an option to realize their investment at around liquidating value, being the net asset value less expenses relating to the liquidation of the company, or to convert to another investment trust.

Based on this assessment, the directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five years.

Going Concern

Having assessed the principal risks and other matters set out in the Viability Statement above, the directors consider it appropriate to adopt the going concern basis of accounting in preparing these financial statements and confirm that they are not aware of any material uncertainties which may affect the Company's ability to continue to do so over a period of at least twelve months from the date of approval of these financial statements.

Financial Instruments

As an investment trust, the Company invests in equities and makes other investments so as to achieve its investment objective of providing good absolute returns over long periods by investing the great majority of its assets in quoted securities and, if appropriate, index futures. In pursuing its investment objective, the Company is exposed to various types of risk that are associated with the financial instruments and markets in which it invests.

These risks are categorised here as market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. The board monitors closely the Company's exposures to these risks but does so in order to reduce the likelihood of a permanent loss of capital rather than to minimise short-term volatility. Risk provides the potential for both losses and gains. In assessing risk, the board encourages the managing director to exploit the opportunities that risk affords.

The risk management policies and procedures outlined in this note have not changed substantially from the previous accounting period.

Market Risk

The fair value or future cash flows of a financial instrument or other investment held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - currency risk, interest rate risk and other price risk. The board of directors reviews and agrees policies for managing these risks and the Company's managing director both assesses the exposure to market risk when making individual investment decisions and monitors the overall level of market risk across the investment portfolio.

Details of the Company's investment portfolio are shown above. There were no derivative financial instrument holdings during the year.

Currency Risk

Some of the Company's assets, liabilities and income are denominated in currencies other than sterling (the Company's functional currency and that in which it reports its results). Consequently, movements in exchange rates may affect the sterling value of those items.

The managing director monitors the Company's exposure to foreign currencies and reports to the board on a regular basis. He assesses the risk to the Company of the foreign currency exposure by considering the effect on the Company's net asset value and income of a movement in the rates of exchange to which the Company's assets, liabilities, income and expenses are exposed. However, the country in which a company is listed is not necessarily where it earns its profits. The effect of movement in exchange rates on overseas earnings may have a more significant impact upon a company's valuation than that arising from a simple translation of the currency in which the company is quoted.

Foreign currency borrowings and forward currency contracts may be used to limit the Company's exposure to anticipated future changes in exchange rates which might otherwise adversely affect the value of the portfolio of investments. At 30 November 2019 the Company had no such borrowings or contracts.

Exposure to currency risk through asset allocation, which is calculated by reference to the currency in which the asset or liability is quoted, is shown below.

* Includes net non-monetary assets of £53,000.

* Includes net non-monetary assets of £56,000.

Currency Risk Sensitivity

At 30 November 2019, if sterling had strengthened by 5% in relation to all currencies, with all other variables held constant, total net assets and total return on ordinary activities would have decreased by the amounts shown below. A 5% weakening of sterling against all currencies, with all other variables held constant, would have had an equal but opposite effect on the financial statement amounts. The analysis is performed on the same basis for 2018.

Interest Rate Risk

Interest rate movements may affect directly:

¾ the fair value of any investments in fixed interest rate securities;

¾ the level of income receivable on cash deposits;

¾ the fair value of any fixed-rate borrowings; and

¾ the interest payable on any variable rate borrowings.

Interest rate movements may also have an impact upon the market value of investments outwith fixed income securities. The effect of interest rate movements upon the earnings of a company may have a significant impact upon the valuation of that company's equity.

The possible effects on fair value and cashflows that could arise as a result of changes in interest rates are taken into account when making investment decisions and when entering into borrowing agreements.

The board reviews on a regular basis the amount of investments in cash and fixed income securities and the income receivable on cash deposits, floating rate notes and other similar investments.

The Company may finance part of its activities through borrowings at approved levels. The amount of any such borrowings and the approved levels are monitored and reviewed regularly by the board. Movements in interest rates, to the extent that they affect the market value of the Company's fixed rate borrowings, if any, may also affect the valuation of the Company's shares in relation to its net asset value.

Cash deposits generally comprise call or short-term money market deposits of less than one month which are repayable on demand. The benchmark rate which determines the interest payments received on cash balances is the bank base rate.

There have been no significant changes to the interest rate risk profile of the Company's financial assets during the year. There were no financial assets subject to interest rate risk at 30 November 2019 and 30 November 2018 other than the cash and cash equivalents shown in the credit risk exposure table below.

Interest Rate Risk Sensitivity

The weighted average interest rate on cash balances held at 30 November 2019 was 0.5% (2018 - 0.3%). An increase of 100 basis points in interest rates at 30 November 2019 would, over a full year, have increased the net return on ordinary activities after taxation by £571,000 (2018 - increased by £258,000) and would have increased the net asset value per share by 1.04p (2018 - increased by 0.47p). The calculations are based on the cash balances as at the respective Balance Sheet dates and are not representative of the year as a whole.

Other Price Risk

Changes in market prices other than those arising from interest rate risk or currency risk may also affect the value of the Company's net assets.

The board manages the market price risks inherent in the investment portfolio by ensuring full and timely access to relevant information from the managing director. The board meets regularly and at each meeting reviews investment performance, the investment portfolio and the rationale for the current investment positioning to ensure consistency with the Company's objectives and investment policies. The portfolio does not seek to reproduce any index. Investments are selected based upon the merit of individual companies and therefore performance may well diverge from comparative indices.

Other Price Risk Sensitivity

A full list of the Company's investments by broad industrial or commercial sector is given above. In addition, an analysis of the investment portfolio is contained in the Managing Director's Report above.

86% (2018 - 91%) of the Company's net assets are invested in equities. A 5% increase in equity valuations at 30 November 2019 would have increased net assets and total return on ordinary activities by £13,510,000 (2018 - £13,604,000). A decrease of 5% would have had an equal but opposite effect.

Liquidity Risk

This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.

Liquidity risk is not significant as the majority of the Company's investment assets are in securities that are readily realizable. The board provides guidance to the managing director as to the maximum exposure to any one holding and to the maximum aggregate exposure to substantial holdings.

The Company's liabilities at 30 November 2019 are all due within 3 months.

Credit Risk

This is the risk that a failure of a counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss.

This risk is managed as follows:

¾ where the managing director makes an investment in a bond or other security with credit risk, that credit risk is assessed and then compared to the prospective investment return of the security in question;

¾ the Company's listed investments are held on its behalf by The Bank of New York Mellon, the Company's custodian. Bankruptcy or insolvency of the custodian may cause the exercise of the Company's rights with respect to securities held by the custodian to be delayed. The company secretaries monitor the Company's risk by reviewing the custodian's internal control reports and reporting their findings to the board;

¾ investment transactions are carried out with a large number of brokers whose creditworthiness is reviewed by the managing director. Transactions are ordinarily undertaken on a delivery versus payment basis whereby the Company's custodian bank ensures that the counterparty to any transaction entered into by the Company has delivered on its obligations before any transfer of cash or securities away from the Company is completed; and

¾ cash is only held at banks that have been approved by the board as creditworthy.

Credit Risk Exposure

The exposure to credit risk at 30 November was:

None of the Company's financial assets are past due or impaired.

Capital Management

The capital of the Company is its share capital and reserves as set out in notes 11 and 12 of the annual report and financial statements. The objective of the Company is to provide good absolute returns over long periods by investing the great majority of its assets in UK and international quoted securities and, if appropriate, index futures. The Company's investment policy is set out on pages 9 and 10 of the annual report and financial statements. In pursuit of the Company's objective, the board has a responsibility for ensuring the Company's ability to continue as a going concern and details of the related risks and how they are managed are set out above.

Shares may be issued and/or repurchased as explained on pages 15 and 16 of the annual report and financial statements and any changes to the share capital during the year are set out in note 12 of the annual report and financial statements. The Company does not have any externally imposed capital requirements.

Fair Value of Financial Instruments

Investments in securities as disclosed in note 8 on page 42 of the annual report and financial statements are financial assets held at fair value through profit or loss. In accordance with FRS 102 and the fair value heirarchy, all of the Company's investments are classified as level 1, with the exception of Eddie Stobart, whose shares were suspended from trading on 23 August 2019 and are classified as level 3, within the fair value hierarchy described below, which reflects the reliability and significance of the information used to measure their fair value. All of the Company's investments as at 30 November 2018 were also classified as level 1. For all other financial assets and liabilities, carrying value approximates to fair value.

Fair Value Hierarchy

The fair value hierarchy used to analyse the basis on which the fair values of financial instruments held at fair value through the profit or loss account are measured is described below. Fair value measurements are categorized on the basis of the lowest level input that is significant to the fair value measurement.

Level 1 - using unadjusted quoted prices for identical instruments in an active market;

Level 2 - using inputs, other than quoted prices included within Level 1, that are directly or indirectly observable (based on market data); and

Level 3 - using inputs that are unobservable (for which market data is unavailable).

Statement of Directors' Responsibilities in Respect of the Annual Report and the Financial Statements

The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland'. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the directors are required to:

¾ select suitable accounting policies and then apply them consistently;

¾ make judgements and accounting estimates that are reasonable and prudent;

¾ state whether applicable United Kingdom Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

¾ prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and Directors' remuneration report comply with the Companies Act 2006. The Directors are also responsible both for safeguarding the assets of the Company and for the maintenance and integrity of the Company's website, and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities (in the case of the safeguarding of assets) and also for the preservation of the website integrity. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Under applicable laws and regulations, the directors are also responsible for preparing a Strategic Report, a Directors' Report, a Directors' Remuneration Report and a Corporate Governance Statement that comply with that law and those regulations.

Each of the directors, whose names and functions are listed within the board of directors section confirms that, to the best of his knowledge:

¾ the financial statements, which have been prepared in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland', give a true and fair view of the assets, liabilities, financial position and net return of the Company;

¾ the annual report and financial statements taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy; and

¾ the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

On behalf of the board

Douglas McDougall

Chairman

24 January 2020

Income Statement

The total column of this statement is the profit and loss account of the Company. The supplementary revenue and capital columns are prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in this statement derive from continuing operations.

A Statement of Comprehensive Income is not required as the Company does not have any other comprehensive income and the net return on ordinary activities after taxation is both the profit and comprehensive income for the year.

Statement of changes in equity

For the year ended 30 November 2019

For the year ended 30 November 2018

* The Capital Reserve balance at 30 November 2019 included an investment holding gain on fixed asset investments of £96,327,000 (2018 - gain of £88,310,000).

 Glossary of Terms and Alternative Performance Measures (APM)

Total Assets

The total value of all assets held less all liabilities (other than liabilities in the form of borrowings).

Net Asset Value

Net Asset Value (NAV) is the value of all assets held less all liabilities (including liabilities in the form of borrowings). The NAV per share is calculated by dividing this amount by the number of ordinary shares in issue.

Discount/Premium (APM)

As stockmarkets and share prices vary, an investment trust's share price is rarely the same as its NAV. When the share price is lower than the NAV per share it is said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the NAV per share and is usually expressed as a percentage of the NAV per share. If the share price is higher than the NAV per share, this situation is called a premium.

Net Liquid Assets

Net liquid assets comprise current assets less current liabilities (excluding borrowings).

Total Return (APM)

The total return is the return to shareholders after reinvesting the dividend on the date that the share price goes ex-dividend.

* The dividend adjustment factor is calculated on the assumption that the dividends paid out by the Company are reinvested into shares of the Company at the cum income NAV at the ex-dividend date.

* The dividend adjustment factor is calculated on the assumption that the dividends paid out by the Company are reinvested into shares of the Company at the last traded price quoted at the ex-dividend date.

Glossary of Terms and Alternative Performance Measures (APM) (Ctd)

Ongoing Charges (APM)

The total administrative expenses incurred by the Company as a percentage of the average shareholders' funds, calculated on a daily basis.

Available Cash

Cash and cash equivalents as adjusted for investment and share buy-back transactions awaiting settlement.

Gearing

At its simplest, gearing is borrowing. Just like any other public company, an investment trust can borrow money to invest in additional investments for its portfolio. The effect of the borrowing on the shareholders' assets is called 'gearing'. If the Company's assets grow, the shareholders' assets grow proportionately more because the debt remains the same. But if the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets. The level of gearing can be adjusted through the use of derivatives which affect the sensitivity of the value of the portfolio to changes in the level of markets.

Net gearing/(cash) is borrowings less available cash (as defined above) and fixed interest securities (ex-convertibles) divided by shareholders' funds.

Compound Annual Return

The compound annual return converts the return over a period of longer than one year to a constant annual rate of return applied to the compounded value at the start of each year.

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Regulated Information Classification: Annual financial and audit reports

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